Category Archives: Insurance

Superstorm Sandy Claims and The Anti-Concurrent Causation Clause

By Dennis Smith, Esq.

Many of the homeowner Superstorm Sandy cases will be ripe for judicial resolution.  One issue that has not been definitively decided by this State is how New Jersey Courts will interpret a policy containing a clause that denies coverage for a covered cause of loss when accompanied by an excluded cause of loss regardless of the sequence.  Such Anti-Concurrent Causation clauses (ACC) are frequently contained in homeowners’ insurance policies.  Usually, the provision is included as the first paragraph under the Exclusion Section of the policy and provides:

“We will not pay for loss or damage caused directly or indirectly by any of the following.  Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”

Insurance companies have attempted to eliminate the need for courts to search for the efficient proximate cause of a loss by incorporating ACC clauses into their policies.  These clauses attempt to preclude any claim that involves the particular excluded peril, even if that is only one of multiple causes of the loss.  Such clauses were challenged and examined in courts following Hurricane Katrina.  Until the New Jersey Supreme Court tackles this issue, we are left with an educated guess as to how the ACC clauses will play out in New Jersey.  New Jersey courts have historically been protective of its insureds reading exclusionary provisions narrowly, coverage provisions broadly and have sought to interpret insurance policy provisions to meet the insured’s reasonable expectations.  With this in mind, the rationale of the Mississippi Supreme Court in Corbin v. U.S.A.A. may provide insight as to how a New Jersey Supreme Court may weigh in on this issue.

In Corbin v. United Services Automobile Association, 20 So.3d 601 (Miss. 2009), the Mississippi Supreme Court considered an ACC clause providing:  “We do not insure for loss cause directly or indirectly by any of the following.  Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”  The Court interpreted the word “loss” in the ACC clause as occurring when the insured suffers deprivation, physical damage, or destruction of his property and most significantly, held “[t]he insured’s right to be indemnified for a covered loss rests at the time of loss.  Once the duty to indemnify arises, it cannot be extinguished by a successive [sequential] cause or event.”  Id. at 613.  Thus, the Court found that the ACC clause only applied when covered peril, (such as wind) and an excluded peril, (such as water) truly act “concurrently” meaning “in conjunction, as an indivisible force occurring at the same time to cause direct physical damage resulting in loss.”  Id. as 614.  The court found that the “in any sequence” language contained in the ACC clause created an ambiguity and may not be used to divest an insured of his right to be indemnified for covered losses.  Thus, the court rejected the proposition that under the ACC clause, damage caused by both excluded and covered perils or other causes is not covered. The Court explained:

 “[t]he ACC clause applies only if and when covered and excluded perils contemporaneously converge, operating in conjunction, to cause damage resulting in loss to the insured property. If the insured property is separately damaged by a covered or excluded peril, the ACC clause is inapplicable.  If damage is caused by a covered peril, the insured is entitled to indemnification for the covered loss, as the insured’s right to recover for the loss has vested.  Conversely, if the damage is caused by an excluded peril, the insured is not entitled to indemnification for that uncovered loss.  Based on the evidence thus far presented, the same loss with multiple causes is not an issue here.  Thus, a finder of fact must determine what losses, if any were caused by wind, and what losses, if any were caused by flood.  If the property suffered damage from wind, and separately was damaged by flood, the insured is entitled to be compensated for those losses caused by wind.  Any loss caused by “[flood] damage” is excluded.  If the property first suffers damage from wind, resulting in a loss, whether additional “[flood] damage” occurs is of no consequence, as the insured has suffered a compensable wind-damage loss.  Conversely, if the property first suffers damage from flood, resulting in a loss, and then wind damage occurs, the insured can only recover for losses attributable to wind.  Id. 618”

Clearly, as Hurricane Sandy claims continue to be evaluated, the ACC clause will remain a source of debate.  While many property damage policies exclude damages for flooding, if it can be established that property damage was caused by wind, including wind-driven rain, recovery can be obtained.  The cause of damage to a particular home and the dollar value of the damage will generally be fact questions for the jury based on battling expert reports.


Fraud by Physician in the Application Process Does Not Preclude Insurance Recovery by Injured Plaintiff

By Dennis Smith, Esq.

The recent Appellate Division Decision in Demarco v. Stoddard, Docket No. A-3924-12T1, 2014 N.J. Super. LEXIS 13 (January 22, 2014), preserves some insurance proceed recovery for an injured plaintiff when an insurer seeks to rescind a policy because of misrepresentation in the application process.  In Demarco, a patient sued a doctor for malpractice.  The doctor’s insurance carrier disclaimed coverage on the theory that coverage had only been granted due to material misrepresentations having been made on the application.  The court found that while material misrepresentations had been made, the innocent patient, who is an unnamed third-party to the insurance contract, should not be forced to suffer as a result of the misrepresentations.  Accordingly, instead of rescinding the policy in its entirety, the court looked to the rational applied in auto insurance cases and used equitable principals to hold that the policy should be reformed to provide for the minimum amount of coverage required by law.  In New Jersey, the minimal amount of insurance coverage doctors must carry is one million dollars.

Notably, the court distinguished First Am. Title Ins. Co. v. Lawson, 177 N.J. 125 (2003), a case that rescinded a legal malpractice insurance policy on the basis of misrepresentations in the application, because that was a case of subrogation between insurers where no innocent third-party was involved because the wronged client had already been made whole by the title insurance company who, in turn, sought reimbursement from the attorney’s malpractice carrier.

Consequently, if Demarco succeeds in his malpractice case, the insurer is required to indemnify the doctor for the minimum amount mandated by the New Jersey law – one million dollars.  Following the Demarco decision, we expect to see in any case where an insurer files a declaratory judgment action seeking to rescind a policy issued to a physician based on fraud in the application process, the plaintiff in the underlying malpractice case, as a necessary party to the declaratory judgment action, will likely counterclaim for reformation of the policy to provide for the minimum limits of coverage required to be carried by the professional being sued.

Conflicting Decisions Regarding Premises Liability Create Uncertainty for Commercial Shopping Center Tenants

By Louis Pashman, Esq.

You are a tenant in a commercial shopping center.  Someone visiting your store is injured in a fall outside your store.  As is common in shopping center leases, the landlord is responsible to maintain all common areas.  Are you responsible for the injury to the person who visited your store?  Two recent appellate decisions reached different results.

In Kandrac v. Marrazzo’s Mkt., a 2012 decision, a customer who had been at defendant’s store fell on a hump in the parking lot.  The court found the tenant not liable.  While refusing to rule that such a tenant is automatically relieved of liability, it cited three reasons for its decision.  First, the accident did not occur on a route fixed by the tenant.  Second, it was not in close proximity to the defendant’s store and, third, the area where the accident occurred was not in defendant’s control.  The lease provision imposing maintenance responsibility on the landlord was a “significant” factor.

In a 2013 decision, Nielsen v. Wal-Mart Store # 2171, an independent contractor at Wal-Mart to perform exterminating services alleged he slipped and fell in loose sand and gravel in an area outside the store.  The lease imposed on the landlord the same duty to maintain the common areas, which included the area where the plaintiff fell.  The court could have distinguished the Kandrac case.  The route the independent contractor took was prescribed by Wal-Mart.  It was in closer proximity than Kandrac.  Neilsen, however, did not rest on any of those distinctions.  Rather, the court in Nielsen disagreed with Kandrac.  Although Wal-Mart had no contractual obligation to maintain the area, nothing prevented them from doing so.  While in Kandrac the court found that the duty imposed on the landlord was a “significant” factor, in Nielsen it carried little weight.  Neither ownership nor control, the Nielsen court said, is determinative.  The language used by the parties is not of great import.  Basic fairness and public policy considerations are paramount.

If this leaves you uneasy about your responsibility if you are a tenant in a commercial shopping center—it should.

NJ Economic Development Authority Approves New Loan Program for Businesses and Nonprofits that Were Physically Damaged by Hurricane Sandy or that Want to Expand within Storm-Impacted Communities

By Samantha Sherman, Esq.

Starting in July, a new loan program will offer direct, low-cost loans of up to $5 million to businesses and nonprofits that suffered physical damage as a result of Hurricane Sandy, as well as to businesses wanting to expand within communities affected by the storm. The New Jersey Economic Development Authority (NJEDA) approved the creation of the Stronger NJ Business Loan Program on June 11, 2013 at its monthly Board meeting.

The Stronger NJ Business Loan Program is the second business recovery initiative funded by New Jersey’s Community Development Block Grant (CDBG) Disaster Recovery Action Plan and will make available $100 million of the $460 million allocated to assist storm-impacted businesses. Its predecessor, the Stronger NJ Business Grant Program, was launched in May.

Although the Stronger NJ Business Loan Program will be available to entities located anywhere in New Jersey, it will have different eligibility requirements for the nine counties identified as the most severely impacted by the storm: Atlantic, Bergen, Cape May, Essex, Hudson, Middlesex, Monmouth, Ocean and Union.

According to the press release on the NJEDA website, businesses located outside the nine counties are required to demonstrate a minimum of $5,000 in physical damage to real property and/or loss or damage of non-perishable and non-consumable inventory in order to qualify for a loan under the Program.  By contrast, businesses located within the nine counties may satisfy eligibility requirements either by meeting the $5,000 damage/loss requirement or by positively impacting the economy of their community through capital investment or the creation or retention of jobs.

The Stronger NJ Business Loan Program will support two kinds of loans, each with its own maximum amount.  Working capital loans will have a maximum loan amount of $500,000, not counting equipment.  Renovation or new construction loans will have a maximum loan amount of $5 million.

As a general matter, only small businesses with at least $25,000 in annual revenues and at least one New Jersey address and whose existence predates the landing of Hurricane Sandy will qualify.  In addition, Program loans may not be used to satisfy financial needs met by other public or private funding sources and will not be disbursed to businesses unless they have applied for an SBA disaster loan.

Insurers Obligation to Notify Policyholder About Change in Coverage Limits

By Dennis Smith, Esq.

If you like many other insurance policy consumers renew your policy on a yearly basis with the same insurer assuming your coverage limits remain constant — what is the insurer’s notification obligation when a newly added policy provision alters your coverage limits?

Our Supreme Court has held that policy changes must be conveyed fairly to the policyholder, although in no particular form.  Skeete v. Dorvius, 184 NJ 5 (2005). Thus if a policy change altering your coverage amount is buried within a few paragraphs of a 100 page insurance policy this is insufficient. Placement of Notice of a Policy Change is critical and for the new policy language to be enforced the insurer should notify its insured in a cover letter outlining significant policy changes for the upcoming year so that the policyholder is aware of them.  Such a practice gives the policyholder “a chance to digest the changes before drowning …in a sea of paper.”  Skeete, 184 NJ at 9.  For example in Newman v. Insurance. Co., 2009 WL 2243779 (App. Div. 2009), Newman was driving a truck owned by his employer when he was struck and seriously injured by an uninsured driver. Newman had three possible policies under which to assert his uninsured motorist claim: the employer’s Insurance policy, his own insurance policy which had uninsured limits of $15,000 and because he was a resident of his parents’ their NJM policy which had $300,000 limits.  The NJM policy had a step down uninsured motorist provision which stated that NJM’s limits would not exceed the highest applicable limit of liability under any insurance providing coverage to Newman.  NJM took the position that its liability was limited to the $15,000 maximum amount Newman elected under his own automobile policy for uninsured coverage not the $300,000 limit chosen by his parents.  While the court acknowledged that the step – down provisions are enforceable Newman’s parents were not provided with adequate notice of the step – down clause and NJM “should have informed Newman’s parents when the step – down clause was added, that the coverage for any insured who was not a named insured (Newman) would be greatly limited.”  2009 WL 2243779 at p. 5.  Consequently the court found that NJM’s limits applied and Newman was not limited to a $15,000 recovery for his significant injuries.

If your understanding of the scope of coverage purchased by you differs from the insurers after notice of your claim is provided to the company, we can help you navigate through the issues and advise as to the merits of your claim based on policy language and case law.

Three Legal Developments Are Designed to Ease and Speed Sandy-Related Disaster Relief Process for New Jersey Residents and Businesses

By Samantha Sherman, Esq.

New Jersey Establishes New Insurance Mediation Program to Speed Sandy-Related Claims

A new mediation program will allow New Jersey residents whose property was damaged or destroyed by Sandy to settle disputed insurance cases without having to engage in costly and time consuming litigation.  Under the program, property owners will be able to submit homeowner’s, automobile and commercial property insurance claims to a mediator who will review the case and assist in settlement discussions.  Insurance carriers will pay for the cost of the mediator.

The program will be available for non-flood Sandy-related claims greater than $1,000 that do not include a reasonable suspicion of fraud and are based on policies in force at the time Sandy made landfall.  The program initially will not include flood insurance claims because the National Flood Insurance Program (NFIP) handles those claims pursuant to federal regulations.   However, the New Jersey Department of Banking and Insurance will monitor and assess the viability of securing NFIP participation in certain cases at a later date.

State regulated insurers must notify insureds with open or unresolved homeowner’s, automobile and commercial property claims that they can request a mediation conference and detailed instructions regarding how to file such a request.

Insurers authorized or admitted to transact business in New Jersey and the New Jersey Insurance Underwriting Association will be required to participate in the program.  Surplus lines insurers and risk retention groups may elect whether or not to participate on a case-by-case basis.  Participation by policyholders is entirely voluntary.

FEMA Extends Deadline for Sandy Disaster Assistance Registration by 30 Days

New Jersey residents affected by Sandy now have until April 1, 2013 to register for individual disaster assistance through the Federal Emergency Management Agency (FEMA).  The deadline extension applies to homeowner, renter and business registration with the Small Business Administration (SBA) for Disaster Loan Assistance.

New Jersey businesses also have until July 31 to apply for SBA economic injury disaster loans.

Shore Businesses to Enjoy Expanded Seasonal Alcoholic Beverage License Term

Because shore businesses were unable to remain open through November 2012 as a result of mandatory evacuations, power outages and other disruptions caused by Sandy, seasonal alcoholic beverage consumption licensees will be permitted to serve alcoholic beverages beginning on March 1 instead of May 1 for the 2013 tourism season.

Seasonal alcoholic beverage licensees will be able to serve alcoholic beverages through November 14, 2013.

Short Term Coverage for Business Income Loss

By Dennis Smith, Esq.

In the wake of hurricane Sandy, many professional service businesses were totally shut down for two or three days, losing substantial amounts of income.  A typical business owner’s policy will “pay for the actual loss of business income [the insured] sustain[s] due to the necessary suspension of your ‘operations’ during the ‘period of restoration’.”  “Operations” is generally defined to mean your business activities occurring at your place of business.  The majority of courts have interpreted the undefined phrase “necessary suspension” to mean a total cessation of business operations.  Put differently, in order to trigger coverage for business income loss, the professionals’ business, at least initially, has to be completely shut down such that no professionals are able to work at the office.   The more troubling definition, as it relates to the recovery of short term business income loss, is the definition of “period of restoration.”  In many policies, “period of restoration” is defined to mean the period of time that begins “seventy-two hours after the time of direct physical loss or damage for business income coverage. . .”  In the world of the professional service business, a seventy-two hour waiting period before the policy allows for the recovery of business income could be quite damaging and may result in hundreds of thousands of dollars of unreimbursed losses. 

The bottom line is that professional services companies should review their business owners’ policies carefully to determine whether a short term business income loss would be covered.  Even in the worst scenarios, businesses typically experience one to three days of losses before being up and running at full capacity.  Under such circumstances, depending upon your policy provision, coverage for the business income loss may not be recoverable.